Flying home on Air Force One last Saturday, President Donald Trump talked to reporters about his successful dinner chat with General Secretary Xi Jinping, declaring:

It’s an incredible deal. It goes down, certainly—if it happens, it goes down as one of the largest deals ever made. It’s a deal between the United States and China made by the President and the President. And it’ll have an incredibly positive impact on farming, meaning agriculture, industrial products, computers—every type of product.

As with much of what Donald Trump says, there’s some truth here and some ‘not so much’ truth here.

The Chinese state’s account of the meeting has been brief. State Councillor Wang Yi said, ‘The discussions on economic and trade issues between the two sides were very positive and constructive, and reached a principled consensus.’

Wang also reportedly said that the consensus Trump and Xi reached included preventing trade frictions from spreading, returning to dialogue to resolve issues, and a joint goal of cooperation to benefit the global economy.

So, we don’t know much from the dinner meeting itself. But we do know what the Chinese authorities have done in response to the US tariffs since Trump first imposed them in July 2018.

We also know that different parts of the US government machinery continue to take strong measures that can only be seen as part of a long-term China strategy.

The arrest of the Huawei founder’s daughter (and Huawei CFO) Meng Wanzhou in Canada for extradition to the US is a strong indicator that US authorities see themselves as engaged in high-technology competition with Beijing. Because of this, when Chinese tech companies ‘break the rules’, the US is willing to act.

Beijing seems to also see this arrest as part of what is now an agreed long-term strategic competition, with the usually strident Global Timesgetting it right: ‘For a considerable period of time, negotiating while at “war” will be the normal state of China–US relations, and we need to get used to this new reality.’

Less sensational, but on a deeper level, the latest report of the US Trade Representative, released on 20 November 2018, is an example of this. It’s not happy reading for those wanting an early and enduring end to US–China structural economic and trade differences. But it does a great job of analysing and describing Chinese state and corporate measures and actions since the US tariffs began.

It shows that Beijing’s response to the tariffs has been to double down on the policies and practices at the core of the dispute with the US. And Beijing has also used its iron control of Chinese media to obscure their continuing commitment to the ‘Made in China 2025’ plan that underpins these key policies and practices. A leaked memo from China’s Internet Propaganda Ministry is typically direct and threatening, telling Chinese media outlets ‘To re-emphasise: do not make further use of “Made in China 2025”, or there will be consequences.’

What doubling down have we seen from China on its pursuit of strategic and economic dominance in high-tech sectors?

China updated its set of ‘strategic emerging industries’, issuing a new draft for comment in September 2018. This keeps the ‘Made in China 2025’ focus on creating Chinese technological dominance in new-generation information technology, high-end equipment manufacturing, new materials, biotechnology, new energy vehicles, new energy, and data.

It also looks like Chinese actors have increased the tempo and scale of cyber-enabled theft against US firms in the cloud computing, internet of things, artificial intelligence, biomedicines, civilian space, alternative energy, robotics, rail, agricultural machinery, and high-end medical devices sectors.

Last month, cybersecurity firm Carbon Black reported a sharp rise in the third quarter of 2018 ‘in attacks against manufacturing companies—a type of attack that has been frequently tied to Chinese economic espionage’. Carbon Black’s chief cybersecurity officer, Tom Kellerman, said there has been a ‘resurgence of Chinese attacks. And I think that’s in direct line with the increasing tension with the South China Sea coupled with the trade war. Essentially, the Chinese have taken the gloves off.’

China’s unfair technology transfer regime for US and other foreign companies operating in China persists. The US Trade Representative’s report tells us that ‘companies and other trading partners have continued to report on and express concern regarding China’s technology transfer regime. China has not effectively resolved the systemic or specific problems’.

The US–China Business Council’s members support this judgement. In its 2018 member survey, the council reports that 88% of companies are concerned about China’s preferential policies for domestic companies, and American companies are less optimistic about China’s policy direction than in earlier surveys.

And the US–China Business Council isn’t alone. The European Union Chamber of Commerce in China says it ‘shares many of the US’ concerns about China, including a general lack of market access—particularly in high-tech sectors—a business environment that favours domestic firms [and] the continued existence of technology transfers as a pre-condition for market access’.

China’s much trumpeted ‘opening up’ as championed by Xi at the recent Shanghai Import Expo turns out to be limited and incremental changes to foreign investment restrictions. This approach is confined to sectors where China wants to attract more foreign investment and technology transfer, or where Chinese state policies have already created overwhelmingly favourable conditions for Chinese firms—like railway lines and electricity grid construction and management—so opening to foreign competition is likely to be meaningless.

There’s plenty more in the US Trade Representative’s report. But one other crucial area shows both Beijing’s continued drive to get hold of high technology to gain strategic and economic dominance, combined with behaviour that is designed to obscure this effort.

This is in the scale and focus of Chinese outbound investment. Unsurprisingly, in light of the tariff dispute and overall tension, Chinese investment into the US has dropped markedly over the last year. In the first half of 2018, completed acquisitions and greenfield investments by Chinese companies were at their lowest rates for seven years, and since then, ‘the pace of newly announced transactions remains similarly depressed’.

The surprise, though, is that a particular type of Chinese foreign investment into the US has not just continued, but increased quite dramatically. Instead of falling along with general Chinese investment into the US, Chinese venture capital investment into US technology centres, including Silicon Valley, has actually intensified in recent months. This shows that the Chinese state is intent on continuing to secure cutting-edge technologies and intellectual property from the US to implement its ‘Made in China 2025’ plan.

What do we make of all this? As Peter Jennings has said, no doubt the dinner Trump and Xi had in Buenos Aires was lovely. There may even be a future ‘incredible deal’ between Trump and Xi on agriculture, general manufacturing, food and services—although seeing this anytime soon on the back of the Huawei arrest looks unlikely.

We can be very sure, though, that General Secretary Xi and the leadership of the Chinese Communist Party remain ruthlessly focused on achieving strategic and economic dominance in the commanding heights of the future global economy—in areas like artificial intelligence, quantum computing, new energy, biotechnology, new internet technologies and advanced manufacturing.

So, there’s no end to the renewed strategic and economic competition between China and the United States. There will be continued effort by both governments—and their business communities—to ‘decouple’ in the areas of high technology and advanced manufacturing.

Let’s understand this central fact, look for the opportunities for Australia, and work through the implications for global security and the regional and global economy.

Author

Michael Shoebridge is director of the defence and strategy program at ASPI. Image courtesy of the White House.